May’s almost 1000 point “Flash Crash” brought back memories of the bad old days. We may never know what spooked the market, but calmer heads prevailed and the world did not end. In fact by the end of the trading session, much of the decline had recovered, none of which kept May from being a dreary month indeed. In fact, it was the worst month in a very long time.
Investors had plenty to think about during the month, and it made them cranky.
But, on the other hand, economic news is generally good, interest rates are low, employment is slowly rising, consumers are more confident, and there are signs that even housing may be stabilizing. The world hasn’t ended and isn’t likely to end soon. Long term investors need to ignore the market’s gyrations and stick to their plans and have faith that over time they will be rewarded for supplying capital to the world’s economy. Otherwise their own behavior is the greatest risk that they face.
Market declines are always disconcerting but part of the investment process. After the huge run up stock market recovery, it would be surprising indeed if the market never “corrected” before going on to new highs.
Investors that missed out on the great buying opportunities of 2007-2008 may have another chance to put some of that $3 Trillion dollars parked in money market funds to work. Eventually, investors will tire of zero returns, re-discover their taste for risk, and a then good portion of those funds will find their way back into the stock market inevitably raising the market. It’s only a question of who will be on board to benefit when it happens.
The mess in Europe opened up the possibility of sovereign defaults, the collapse of the Euro, Massive Bailouts, expulsion of weak countries from the European Union, or withdrawal of strong countries from the EU. None of this bodes well for economic growth in Europe, which will inevitably retard global growth. The resulting decline in the value of the Euro hammered any foreign investment held by US citizens, compounding global investor’s misery.
Of course, we shouldn’t be surprised that Goldman Sachs arranged currency swaps for Greece over the last decade that allowed Athens to raise funds to reduce its budget deficit while pushing payments well into the future. Those transactions were not classified as loans, report the New York Times, and not made known to Brussels officials. That’s just another example of leading edge financial chicanery from Wall Street’s wonder children.
Who needs terrorists when we have BP? The economic and environmental damage of the Gulf Oil Spill may mount higher than from a few well placed atomic weapons. As of today no one has the foggiest notion of how to contain the oil, and there is no end in sight. Americans are again confronting government agencies and regulators that are incompetent, inept, and possibly corrupt. Meanwhile, only the guys that got us into this mess have any resources to correct it. Sound familiar?
As if that’s not enough, the two Koreas edged toward war, the Middle East Peace Process is destroyed, and the UN thinks Iran has enough enhanced uranium to make two bombs.
With memories of 2007-2008 fresh in their minds, investors headed for the doors. The results were dismal indeed. Every asset class was punished in May, but of course, foreign holdings were impacted adversely by the decline of the Euro. REITS and Commodities suffered right along with their more traditional stock market relatives.
The May results swamped any gains from April, leaving only REITS with a nominal positive return.
Year to date, the domestic returns are positive, REITS are positive, foreign returns negative, and Commodities negative, leaving the equities portfolio with a small net loss.
